Introduction to the EMA Trend Indicator
Moving average lines are most basic type of trend following technical indicators. In fact, most traders would use some type of moving average line to help them objectively identify trend direction.
The Exponential Moving Average is one of the most popular types of moving average lines because of its balance between responsiveness and smoothness. The EMA Trend Indicator is a tool that uses Exponential Moving Averages to indicate trend direction.
What is the EMA Trend Indicator?
The EMA Trend Indicator is a trend following indicator based on a set of Exponential Moving Average (EMA). This indicator plots two pairs of Exponential Moving Average lines. This set of EMA lines can be used to identify trend direction and potential dynamic support and resistance levels.
How the EMA Trend Indicator Works?
The EMA Trend Indicator plots four EMA lines which are based on two candle periods – a faster EMA line and a slower moving average line. The indicator then shifts one set of EMA lines up and another set of EMA lines down.
The magenta line is the faster EMA line shifted up, while the dodger blue line is the faster EMA line shifted down. The blue line is the slower EMA line shifted up, while the red line is the slower EMA line shifted down.
How to use the EMA Trend Indicator for MT4
The EMA Trend Indicator has only two variables which are used to modify the two pairs of EMA lines.
The “Fast MA Period” allows users to modify the number of bars applied on the faster EMA lines, while the “Slow MA Period” allows users to modify the number of bars applied on the slower EMA lines.
The EMA Trend Indicator can used as a trend direction filter. Trend direction can be observed based on how the faster and slower EMA lines crossover. Trend direction is bullish whenever the faster moving average lines are above the slower moving average lines. The area between the middle lines also tend to narrow whenever the trend has a strong momentum or if the trend has been extended for quite some time.
This indicator can also be used as a dynamic support and resistance indicator. It is best to trade with the trend entering trades on pullbacks as price touches the middle lines.
Buy Trade Setup
When to Enter?
Identify a currency pair with a developing uptrend market. Open a buy order as price retraces towards the middle lines of the EMA Trend Indicator. Set the stop loss below the bottom EMA line.
When to Exit?
Close the trade as price action shows signs of a bearish reversal.
Sell Trade Setup
When to Enter?
Identify a currency pair with a developing downtrend market. Open a sell order as price retraces towards the middle lines of the EMA Trend Indicator. Set the stop loss above the top EMA line.
When to Exit?
Close the trade as price action shows signs of a bullish reversal.
Conclusion
The trading technique used in the examples is just one of the many ways traders can use the EMA Trend Indicator. Traders could apply the EMA Trend Indicator to different trading strategies as an additional level for identifying possible trend reversals and retracement pullbacks.
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